Edited version of your written advice

Authorisation Number: 1012992048023

Date of advice: 12 May 2016

Ruling

Subject: Fringe Benefits Tax - Housing benefits - Remote area housing

Question 1

Where a Company's location is recognised as a remote area pursuant to subsection 140(1) of the Fringe Benefits Tax Assessment Act 1986 ("FBTAA"), will the company satisfy the necessary criteria required for the purposes of accessing the Fringe Benefits Tax ("FBT") concessions available under sections 58ZC, 59, 60, 60A, and 61 of the FBTAA?

Answer

Yes

Question 2

Where the Company's employees request to salary sacrifice benefits provided under the sections listed in Question 1 above, can the taxable value of the benefits be reduced or exempted under the relevant subsection (where the relevant criteria are satisfied) under the following circumstances:

a) The employee incurred the costs in prior FBT years;

b) The Company subsequently enters into a salary sacrifice arrangement with the employee to recoup the costs from the employee via pre-tax deductions; and

c) The Company reimburses the employee for the costs during the current FBT period.

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 2016

Year ending 31 March 2017

Year ending 31 March 2018

Year ending 31 March 2019

The scheme commences on:

1 April 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You advised that your company has recently experienced difficulties in attracting and retaining employees, and you contend that competitors in the region are likely to be offering remuneration packages which include remote-area related benefits.

You have confirmed that based on the company's experience, it is widely known in the industry that in order to attract and retain staff in remote locations where such operations occur, businesses must provide remote area benefits to compete for scarce talent. Additionally, it is contended that it is customary in such remote areas, to use these remote area concessions to attract and retain staff to the area to work.

You intend to revise your policies to provide the following benefits to employees:

a) Remote area housing

Eligible employees to be provided with accommodation assistance in the form of one of the following (where the associated accommodation/dwelling is the employee's usual place of residence):

1. Reimbursement for interest costs associated with employee's residential housing loan interest relating to accommodation located in the remote area; or

2. Reimbursement of employee's residential rent expenses relating to a unit of accommodation in the remote area; or

3. Reimbursement of the employee's expenditure in respect of remote area residential property that includes an interest in land in the remote area; or

4. Residential accommodation owned or leased by your company.

b) Remote area residential fuel provided in relation to:

1. A dwelling connected to a remote area housing loan;

2. Accommodation connected with remote area housing rent; or

3. A remote area housing benefit.

c) Remote area holiday transport fringe benefits.

The employees to whom the remote area-related benefits are proposed to be provided will be current employees of your company at the time of the provision of the benefit, and will carry out their employment duties in the remote area.

You propose to enter into a salary sacrifice arrangement ("SSA") with certain employees whereby you will reimburse the employee prospectively for prior period expenses incurred in relation to remote area housing, even when your company has not previously provided assistance in the form of a fringe benefit.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 58ZC

Fringe Benefits Tax Assessment Act 1986 section 59

Fringe Benefits Tax Assessment Act 1986 section 60(2)

Fringe Benefits Tax Assessment Act 1986 section 60(2A)

Fringe Benefits Tax Assessment Act 1986 section 60(4)

Fringe Benefits Tax Assessment Act 1986 section 140

Fringe Benefits Tax Assessment Act 1986 section 142(1)

Fringe Benefits Tax Assessment Act 1986 section 142(1A)

Fringe Benefits Tax Assessment Act 1986 section 142(2C)

Fringe Benefits Tax Assessment Act 1986 section 142(2E)

Fringe Benefits Tax Assessment Act 1986 section 143(1)

Reasons for decision

All legislative references refer are to the FBTAA unless otherwise specified.

Question 1

Where the company's location is recognised as a remote area pursuant to sub-section 140(1) of the FBTAA, will the company satisfy the necessary criteria required for the purposes of accessing the FBT concessions available under sections 58ZC, 59, 60, 60A, and 61 of the FBTAA?

Summary

Yes. The specified location of your company is considered to be in a remote area. It is a town listed as remote in published ATO guidance. Your company will satisfy the necessary criteria required to access the FBT concessions available under sections 58ZC, 59, 60, 60A, and 61 of the FBTAA.

Detailed reasoning

I. Section 58ZC Exempt Benefits - Remote Area Housing Benefits

A remote area housing benefit provided by an employer is an exempt benefit for the purposes of section 58ZC provided certain conditions are satisfied.

Section 58ZC provides:

1) a housing benefit that is a remote area housing benefit is an exempt benefit.

2) a housing benefit in relation to an employer for a year of tax and for a unit of accommodation, being a benefit provided to an employee of the employer in respect of the employee's employment, is a remote area housing benefit if:

a) during the whole of the tenancy period, the unit of accommodation was located in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

b) During the whole of the tenancy period, the recipient was a current employee of the employer and the usual place of employment of the recipient was not at a location in, or adjacent to, an eligible urban area; and

c) Repealed

d) It would be concluded that it was necessary for the employer, during the year of tax, to provide, or to arrange for the provision of, residential accommodation for employees of the employer because:

(i)The nature of the employer's business was such that employees of the employer were liable to be frequently required to change their places of residence; or

(ii)There was not, at or near the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer); or

(iii)it is customary for employers in the industry in which the recipient was employed during the tenancy period to provide residential accommodation for their employees free of charge or for a rent or other consideration that is less than the market value of the right to occupy or use the accommodation concerned; and

e) The recipients overall housing right was not granted to the recipient under:

(i)A non-arm's length arrangement; or

(ii)An arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section.

Section 58ZC(1) - A housing benefit that is a remote area housing benefit

Subsection 58ZC(1) provides that a housing benefit that is a remote area housing benefit is an exempt benefit.

A "housing benefit" is defined in section 136(1) to mean a benefit referred to in section 25. Section 25 defines that benefit as where a person grants 'a housing right' to another person.

A "housing right" in relation to a person is defined in subsection 136(1) to mean a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

Accordingly, a housing right arises where a lease or licence granted to a person to occupy or use a unit of accommodation subsists at a time when the unit of accommodation is the person's usual place of residence.

A "unit of accommodation" is defined in subsection 136(1) to include (amongst other things) accommodation in a house, flat or home unit, or any living quarters.

Application to your company

You intend to provide certain employees with residential accommodation owned or leased by your company in a remote area. This provision of housing assistance will only be provided to current employees and is to be used as the employee's usual place of residence. Accordingly, a housing benefit will be provided. The criteria of subsection 58ZC(2) will need to be satisfied for it to be a remote area housing benefit.

Section 58ZC(2) - What constitutes remote area housing benefit

Housing benefits provided to employees may be exempted under subsection 58ZC(1) as a 'remote area housing benefit' provided the conditions in subsection 58ZC(2) are satisfied.

(a) Accommodation must be located in a remote area

The term "remote area" is not defined in the FBTAA. Instead, the FBTAA has a definition of eligible urban area in section 140. A place is in a remote area if it is not in or adjacent to an eligible urban area.

Subsection 140(1) provides:

(a) A reference to an eligible urban area is a reference to:

(i) An area that:

(A) is situated in an area described in Schedule 2 to the Income Tax Assessment Act 1936; and

(B) is an urban centre with a census population of not less than 28,000; and

(ii) An area that:

(A) is not situated in an area described in Schedule 2 to the Income Tax Assessment Act 1936; and

(B) is an urban centre with a census population of not less than 14,000; and

(b) A reference to a location that is adjacent to an eligible urban area is a reference to a location that, as at the date of commencement of this section:

(i) was situated less than 40 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of less than 130,000; or

(ii) was situated less than 100 kilometres, by the shortest practicable surface route, from the centre point of an eligible urban area with a census population of not less than 130,000.

The accommodation must be in a location which is considered to be in a remote area that is the accommodation must not be in or adjacent to an eligible urban area, for the purposes of section 140(1).

Section 140(1) sets out what is an "eligible urban area" and what is a location that is "adjacent to an eligible area".

Paragraph 140(1)(a) provides that an 'eligible urban area" is a reference to an area that is an urban centre with a census population of not less than 14,000 (or 28,000 for an urban centre located in Zone A or B for income tax purposes).

Paragraph 140(1)(b) defines a location that is "adjacent to an eligible urban area" to include one that is (i) situated less than 40km from an urban centre with a population of less than 130,000; or (ii) situated less than 100 km from an urban centre with a population of more than 130,000.

Under this provision, an area will be treated as remote where it is at least 40 kilometres from a town of 14,000 or more people and at least 100 kilometres from a town of 130,000 or more people. However, if the location is in either Zones A or B for income tax purposes, it must be at least 40 kilometres from a town of 28,000 or more people, and at least 100 kilometres from a town of 130,000 or more people (using the 1981 Census population figures).

Application to your company

The specified location of your company is situated more than 40km from the centre point of an eligible urban area. The closest eligible urban area to you is approximately 200km and has a current population of less than 130,000. We accept that your company is in a remote area for FBT purposes, in accordance with section 140.

Paragraph 58ZC(1)(a) is satisfied as the accommodation will be located in a remote area.

(b) During the whole of the tenancy period, the recipient must be a current employee

The exemption is only available if the benefit is provided to a current employee - not a former or future employee - for the whole of the tenancy period. Further, the employee's usual place of employment must not be at a location in or adjacent to an eligible urban area during that period.

Application to your company

On the basis that the proposed benefit is to be provided to current employees undertaking duties in a remote area, this provision is satisfied.

(d) Provision of accommodation is necessary

It must be necessary for the employer to provide residential accommodation to employees for any of the reasons provided in paragraph 58ZC(2)(d).

On the basis that subparagraphs (i) and (ii) do not apply, it is considered that the company satisfies subparagraph (iii), which provides that it is customary in the employer's industry to provide free or subsidised housing to employees.

Taxation Determination TD 94/97, paragraph 2 provides that a benefit will be accepted as being customary where it is normal or common for employees of that class or job description in that industry to be provided with the same or similar benefits.

Application to your company

You have provided information to support the view that similar employers in your industry typically provide accommodation to employees who are required to work in remote areas in order to attract and retain talent. It is therefore accepted the provision of these benefits is customary in the industry.

(e) The arrangement must be at arm's length

The arrangement under which the accommodation is provided must be an arm's length arrangement and must not be provided under an arrangement for the purposes of obtaining the concessions provided by section 58ZC.

Application to your company

The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. It is accepted that the benefit is not provided for the purpose of enabling you to obtain a benefit but rather to attract and retain talent in remote areas.

Section 58ZC conclusion: You satisfy the provisions of section 58ZC.

II. Section 60 - Reduction of Taxable Value - Remote Area

The effect of section 60 is to reduce by 50% the taxable value of certain types of benefits relating to the provision of housing assistance to employees in remote areas.

Subsection 60(2) of the FBTAA - Interest on a loan

Subsection 60(2) provides a reduction of 50% of the taxable value of the fringe benefit in respect of a loan provided to an employee to purchase a dwelling located in a remote area and used as a usual place of residence.

To qualify for the reduction, the conditions of subsection 60(2) must be satisfied.

Subsection 60(2) provides:

a) the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

b) the recipients expenditure is in respect of interest in respect of a remote area housing loan connected with a dwelling;

c) the recipient occupied or used the dwelling as his or her usual place of residence during an occupation period during which the interest accrued; and

d) the fringe benefit was not provided under:

(i)  a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section;

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of that amount as relates to the occupation period.

(a) The recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee

An "expense payment fringe benefit" is defined in section 136(1) to mean a fringe benefit that is an expense payment benefit. An "expense payment benefit" is defined in section 136(1) to mean a benefit referred to in section 20.

Section 20 sets out the circumstances in which an expense payment benefit will be taken to be provided:

Where a person (in this section referred to as the "provider"):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

An expense payment benefit may arise in either of two ways. The first is where an employer pays a third party in satisfaction of expenses incurred by an employee; the second is where an employer reimburses an employee for expenses incurred by the employee.

An expense payment fringe benefit will therefore arise at the time an employer reimburses an employee in respect of an amount of expenditure incurred by the employee.

Application to your company

An expense payment benefit will arise when you reimburse the interest expenditure incurred by employees on the remote area housing loans. Given the reimbursement will only be given to your employees, this section is satisfied as the recipient of the expense payment fringe benefit will be current employees.

(a) The recipients' expenditure is in respect of interest for a remote area housing loan connected with a dwelling.

Subsection 136(1) defines a 'dwelling' as a unit of accommodation constituted by, or contained in a building, being a unit that consists, in whole or in substantial part, of residential accommodation.

Subsection 142(1) - What constitutes a remote area housing loan

Subsection 142(1) set out the criteria that must be satisfied for a loan to be considered a "remote area housing loan connected with a dwelling".

Section 142(1) provides:

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to a remote area housing loan connected with a dwelling is a reference to a housing loan relating to the dwelling where:

a) during the whole of the period (in this subsection referred to as the ``occupation period'') in the year of tax when the employee occupied or used the dwelling as his or her usual place of residence:

(i) the dwelling was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(b) the common conditions set out in subsection (2E) are satisfied in relation to the occupation period; and

(c) (Omitted by No 95 of 1988)

(d) the loan was not made to the employee pursuant to:

(i) a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of section 60.

Application to your company

(a) On the basis that your current employees occupied or used the dwelling in the remote area, as their usual place of residence, the provisions of sub-paragraph 142(1)(a)(i) and (ii) are satisfied.

(b)The common conditions set out in subsection (2E) are satisfied - see analysis below.

(d) The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. In addition the loan made to the employee was by an arm's length financial institution. As such, it is accepted that the benefit is not provided for the purpose of enabling you to obtain a benefit but rather to attract and retain talent in remote areas.

Paragraph 142(1)(b)

Paragraph 142(1)(b) requires the common conditions contained in subsection 142(2E) to be satisfied in relation to the occupation period.

Subsection 142(2E) provides:

For the purposes of the application of this section to a fringe benefit in relation to a year of tax in relation to an employee of an employer, the common conditions in relation to a particular period or in relation to a particular time are as follows:

(a) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees;

(b) it would be concluded that it was necessary for the employer, during the year of tax, to provide or arrange for the provision of housing assistance for employees of the employer because:

(i) the nature of the employer's business was such that employees of the employer were liable to be frequently required to change their places of residence;

(ii) there was not, at or near the place or places at which the employees of the employer were employed, sufficient suitable residential accommodation for those employees (other than residential accommodation provided by or on behalf of the employer);or

(iii) it is customary for employers in the industry in which the employee was employed during that period or at that time, as the case may be, to provide housing assistance for their employees.

Application to your Company

The relevant expenditure to be reimbursed by your company will be the interest for remote area housing loans incurred by certain current employees. As covered in the analysis of section 58ZC, it is accepted that the provision of these benefits is customary in your industry.

Accordingly, your Company has met all the provisions of subsection 142(1) and thus satisfied the common conditions in subsection 142(2E).

(c) The recipient occupied or used the dwelling as his or her usual place of residence during an occupation period during which the interest accrued

Application to your Company

It has been established above in (a) that your current employees occupy or use the relevant dwellings as their usual place of residence in the remote area.

(d) The loan was made at arm's-length

Paragraph 142(1)(d) requires that the loan be made to the employee at arm's length.

Application to your Company

The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. In addition the loan made to the employee was by an arm's length financial institution. As such, it is accepted that the benefit is not provided for the purpose of enabling you to obtain a benefit but rather to attract and retain talent in remote areas.

Section 60(2) Conclusion: Your Company has satisfied the provisions of subsection 60(2).

Subsection 60(2A) - Recipient of remote area housing rent

Subsection 60(2A) provides a reduction of 50% of the taxable value of the fringe benefit.

Subsection 60(2A) provides:

(a) the recipient of the relevant expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer;

(b) the recipient's expenditure is in respect of remote area housing rent connected with a unit of accommodation;

(c) the recipient occupied or used the unit of accommodation as his or her usual place of residence during the period the rent accrued; and

(d) the fringe benefit was not provided under:

(i) a non-arm's length arrangement; or

(ii) under an arrangement that was entered into by any of the parties to the arrangement to enable the employer to obtain the benefit of the application of the subsection.

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50% of so much of the recipients expenditure as relates to the occupation period.

(a) An expense payment fringe benefit of an employee

An expense payment fringe benefit has previously been discussed in the analysis of subsection 60(2).

Application to your company

An expense payment benefit will arise when you reimburse the rent expenditure incurred by your employees on the remote area housing. Given the reimbursement will only be given to current employees, this section is satisfied as the recipient of the expense payment fringe benefit will be a current employee.

(a) Expenditure on remote area housing rent connected with a unit of accommodation

Subsection 136(1) defines a "unit of accommodation" as an accommodation in a house, flat or home unit.

Subsection 142(1A) set out the requirements for the existence of 'remote area housing rent connected with a unit of accommodation".

Subsection 142(1A)

Subsection 142(1A) provides:

In this Act, a reference, in relation to a year of tax in relation to an employee of an employer, to remote area housing rent connected with a unit of accommodation is a reference to rent or other consideration payable in respect of the subsistence of a lease or licence in respect of the unit of accommodation where:

(a) during the whole of the period (in this subsection referred to as the ``occupation period'') in the year of tax when the employee occupied or used the unit of accommodation as his or her usual place of residence:

(i) the unit of accommodation was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(b) the common conditions set out in subsection (2E) are satisfied in relation to the occupation period; and

(c) (Omitted by No 95 of 1988)

(d) the lease or licence was not granted under:

(i) a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of section 60.

Application to your company

(a)Your current employees will satisfy the provisions of subparagraphs 142(1A)(a)(i) and (ii) provided they occupy or use the relevant unit of accommodation during the occupation period as their usual place of residence in a remote area.

(b)As discussed previously in the analysis of sections 58ZC, it is accepted as an underlying assumption of this ruling that it is customary for employers in your industry to provide housing assistance to employees. Your company has met the common conditions set out in subsection 142(2E), as already discussed in the analysis of subsection 60(2).

(d)The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. It is accepted that the benefit is not provided for the purpose of enabling the Company to obtain a benefit but rather to attract and retain talent in remote areas.

Application to your company

This condition will be satisfied at the time you reimburse your employees for the rent expenses incurred by the employees on housing rent associated with their remote area housing.

(c) The recipient occupied or used the dwelling as his or her usual place of residence

Application to your company

It is accepted as per the background facts that the dwelling will be the usual place of residence of the employees.

(d) The expense payment benefit was made at arm's-length

Application to your company

The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. It is accepted that the benefit is not provided for the purpose of enabling you to obtain a benefit but rather to attract and retain talent in remote areas.

Subsection 60(2A) Conclusion: Your company has satisfied the provisions of subsection 60(2A).

Subsection 60(4) of the FBTAA - Expense payment fringe benefit in respect of remote area residential property

Subsection 60(4) provides that a payment for the acquisition of an interest in land (residential property) or the construction/renovation of a building on land located in a remote area and used by an employee as his or her usual place of residence is subject to a 50% reduction.

Subsection 60(4) provides that where:

(a)the recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b) The recipient's expenditure is in respect of remote area residential property.

the amount that, but for this subsection, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

(a) The recipient of an expense payment fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer

Application to your company

As previously covered in the analysis of subsection 60(2), this condition will be satisfied as the recipient of an expense payment fringe benefit will be your employees.

(b) The recipient's expenditure is in respect of remote area residential property

A 'remote area residential property,' is a reference to property that consists of an estate or interest in land as set out under subsection 142(2C).

Subsection 142(2C)

Subsection 142(2C) provides rules for determining eligibility for the subsection 60(4) reduction in taxable value. This subsection sets out the criteria which determine when the recipient's expenditure is in respect of remote area residential property.

Subsection 142(2C) provides:

In this Act, a reference, in relation to an expense payment fringe benefit in relation to a year of tax in relation to an employee of an employer, to recipients' expenditure in respect of remote area residential property is a reference to recipients' expenditure that is incurred wholly:

a) to enable the employee to acquire an estate or interest in land on which a dwelling was subsequently to be constructed or to acquire an estate or interest in land and construct, or complete the construction of, a dwelling on the land;

(b) to enable the employee to construct, or complete the construction of, a dwelling on land in which the employee holds an estate or interest;

(b) to enable the employee to acquire an estate or interest in land on which there is a dwelling; or

(d)  to enable the employee to extend a dwelling, being a dwelling constructed on land in which the employee holds an estate or interest, by adding a room or part of a room to the dwelling, as the case may be;

where:

(e) if paragraph (a) or (b) applies:

(i) at the time the recipients expenditure was incurred, the employee proposed to occupy or use the dwelling as his or her usual place of residence; and

(ii) the Commissioner is satisfied that the employee has pursued sustained reasonable efforts to:

(A) commence the construction, or commence the completion of the construction, of the building constituting or containing the dwelling within 6 months after the time the recipients expenditure was incurred; and

(B) occupy or use the dwelling concerned as his or her usual place of residence within 18 months after the time the recipients expenditure was incurred;

(f) if paragraph (c) or (d) applies - as soon as reasonably practicable after the time the recipients expenditure was incurred, the dwelling concerned was occupied or used by the employee as his or her usual place of residence;

(g)  at the time the recipients expenditure was incurred:

(i) the land was situated in a State or internal Territory and was not at a location in, or adjacent to, an eligible urban area; and

(ii) the employee was a current employee of the employer and the usual place of employment of the employee was not at a location in, or adjacent to, an eligible urban area;

(h) the common conditions set out in subsection (2E) are satisfied in relation to the time the recipients expenditure was incurred; and

(j) the fringe benefit was not provided to the employee under:

(i) a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of section 60 or Division 14Aof Part III.

Application to your company:

You have confirmed that the company intends to reimburse employees both retrospectively and prospectively for expenditure which may be incurred under any of the paragraphs 142(2C)(a), (b), (c) or (d).

Where paragraphs 142(2C)(a) or (b) apply, the provisions of paragraph 142(2C)(e) will need to be satisfied as follows:

(i)Provided your employees propose to occupy or use the dwelling constructed on the land purchased as their usual place of residence, at the time the expenditure was incurred, this condition will be satisfied.

(ii)Provided also that the Commissioner is satisfied that your employees will commence construction of the dwelling within 6 months and occupy or use the dwelling within the required 18 month period of purchase, this condition will be satisfied.

Where paragraphs 142(2C)(c) or (d) apply, and it can be shown that your employees occupied the dwelling as their usual place of residence, as soon as is reasonably practicable after the expenditure is incurred, paragraph 142(2C)(f) will be satisfied.

The condition in paragraph 142(2C)(g) will be satisfied provided that at the time the expenditure is incurred, the land was located in a remote area, and the employee was a current employee in a location that is a remote area.

As discussed previously in the analysis of sections 60(2), the common conditions set out in subsection 142(2E) are satisfied. Accordingly, paragraph 142(2C)(h) is thereby satisfied.

As already discussed, the assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement, or for the purpose of enabling your company to obtain a benefit. It is accepted that the expense payment fringe benefit is not to be provided to your employees pursuant to this condition. Accordingly, paragraph 142(2C)(j) is satisfied.

Subsection 60(4) Conclusion: You satisfy the provisions of subsection 60(4), provided you are able to demonstrate that your employees satisfy the criteria in paragraph 142(2C).

III. Section 59 - Reduction of Taxable Value - Remote Area Residential Fuel  

The effect of section 59 is to reduce the taxable value of certain types of benefits relating to the provision of residential fuel to employees in remote areas.

Residential fuel is defined in subsection 136(1) of the FBTAA as any form of fuel (including electricity) for use for domestic purposes.

Where electricity, gas and other fuel is supplied or paid for by the employer in relation to a remote area housing benefit, the taxable value of the fuel benefit may be reduced by 50% (after taking account of the reduction for certain in-house benefits under section 62).

To qualify for a reduction under section 59, a number of requirements must be met. The primary requirement is that the recipient concerned is also the recipient of a remote area housing benefit as defined in subsection 58ZC(2).

Subsection 59(1) - Remote Area Residential Fuel

Subsection 59(1) provides:

If

(a) residential fuel is for use:

(e) in connection with the recipients unit of accommodation; and

(ii) during the subsistence of the recipients overall housing right;

in relation to a remote area housing benefit, in relation to an employer in relation to a year of tax; and

(b)any of the following conditions are satisfied:

(i)the recipients expenditure in relation to an expense payment fringe benefit in relation to the employer in relation to the year of tax or a subsequent year of tax is in respect of the supply of that residential fuel;

(ii)the recipients property in relation to a property fringe benefit in relation to the employer in relation to the year of tax is that residential fuel;

(iii) the recipients benefit in relation to a residual fringe benefit in relation to the employer in relation to the year of tax is the benefit of the consumption of that residential fuel;

the amount that, apart from this subsection and section 62, would be the taxable value of the fringe benefit referred to in paragraph (b) in relation to the year of tax is reduced by 50%.

Application to your company

(a) Residential fuel used in connection with unit of accommodation

On the basis that the residential fuel will be used in connection with an employee's unit of accommodation in relation to a remote area housing benefit, provided by you, this provision will be satisfied.

(b) Expenditure relating to an expense payment fringe benefit, a property fringe benefit, or a residual fringe benefit in respect of residential fuel

You will be providing an expense payment benefit at the time of reimbursing your employees for their expenditure in relation to the cost of electricity, gas or other residential fuel. Accordingly, condition (i) of this provision is satisfied.

Subsection 59(1) Conclusion: You satisfy the provisions of subsection 59(1).

Subsection 59(2) - Recipient obliged to repay remote area housing loan

Subsection 59(2) provides:

Where:

a) any of the following conditions are satisfied:

(i)  the recipients expenditure in relation to an expense payment fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is in respect of the supply of residential fuel;

(ii)  the recipients property in relation to a property fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is residential fuel;

(iii) the recipients benefit in relation to a residual fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is the benefit of the consumption of residential fuel;

(b)the residential fuel is for use in connection with a dwelling during a period in the year of tax or, in a case to which subparagraph (a)(i) applies, a preceding year of tax, when the recipient of the fringe benefit occupied or used the dwelling as his or her usual place of residence and was under an obligation to repay the whole or a part of a remote area housing loan connected with the dwelling; and

(c) the fringe benefit was not provided under:

(i) a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section;

the amount that, but for this subsection and section 62, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Application to your company:

(a) Expenditure relating to an expense payment fringe benefit, a property fringe benefit, or a residual fringe benefit in respect of residential fuel

You will provide an expense payment fringe benefit under the proposed arrangement to reimburse employees for the whole or part of the cost of electricity, gas or other residential fuel. Accordingly, condition (i) of this provision is satisfied.

(b) Residential fuel used in connection with a remote area dwelling

Provided the residential fuel is used in connection with a dwelling that your employee occupies or uses as their usual place of residence, and is under an obligation to repay the whole or part of a remote area housing loan, connected with the dwelling, then this condition should be met. Additionally, the definition of a remote area housing loan has already been considered in the analysis of subsection 142(1) which formed part of the subsection 60(2) analysis, and it was considered that housing benefits were provided as remote area housing loans.

(c) The reimbursement of residential fuel arrangement was made at arm's-length

The assumption underlying the ruling is that the remote housing assistance will not be provided under a non-arm's length arrangement. It is accepted that the benefit is not provided for the purpose of enabling you to obtain a benefit but rather to attract and retain talent in remote areas.

Subsection 59(2) conclusion: You satisfy the provisions of section 59(2).

Subsection 59(3) of the FBTAA - Accommodation connected with remote area housing rent

Remote area housing rent connected with a unit of accommodation has already been defined in the analysis provided on subsection 142(1A), which formed part of the subsection 60(2A) analysis. Broadly, it is the payment or reimbursement of rent to an employee that relates to a unit of accommodation located in a remote area and used by the employee as his/her usual place of residence.

Subsection 59(3) provides:

Where

(a) any of the following conditions are satisfied:

(i) the recipients expenditure in relation to an expense payment fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is in respect of the supply of residential fuel;

(ii) the recipients property in relation to a property fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is residential fuel;

(iii) the recipients benefit in relation to a residual fringe benefit in relation to an employer in relation to an employee in relation to a year of tax is the benefit of the consumption of residential fuel;

(b) the residential fuel is for use in connection with a unit of accommodation during a period in the year of tax or, in a case to which subparagraph (a)(i) applies, in a preceding year of tax, during which:

(i)the recipient of the fringe benefit occupied or used the unit of accommodation as his or her usual place of residence; and

(ii) remote area housing rent connected with the unit of accommodation accrued; and

(c) the fringe benefit was not provided under:

(i)  a non-arm's length arrangement; or

(ii) an arrangement that was entered into by any of the parties to the arrangement for the purpose, or for purposes that included the purpose, of enabling the employer to obtain the benefit of the application of this section;

the amount that, but for this subsection and section 62, would be the taxable value of the fringe benefit in relation to the year of tax shall be reduced by 50%.

Application to your company

(a) Expenditure relating to an expense payment fringe benefit, a property fringe benefit, or a residual fringe benefit in respect of remote area housing rent

You will provide an expense payment fringe benefit under the proposed arrangement to reimburse your employees for the whole or part of the cost of electricity, gas or other residential fuel. Accordingly, condition (i) of this provision will be satisfied.

(b) The recipient expenditure is in respect of housing rent in connection with a unit of accommodation

Provided the residential fuel is used in connection with a dwelling that your employee occupies or uses as their usual place of residence, and remote area rent accrued in connection with the dwelling, then this condition should be met. Additionally, the definition of remote area housing rent connected to a unit of accommodation has already been considered in the analysis of subsection 142(1A) which formed part of the subsection 60(2A) analysis, and it was considered that housing benefits were provided when you reimbursed employees for rent expenses associated with their remote area housing.

(c) The reimbursement of residential fuel arrangement was made at arm's-length

As previously discussed, in the section 58ZC analysis, the assumption underlying the ruling is that the expense payment benefit will not be provided under a non-arm's length arrangement, or for the purpose of enabling you to obtain a benefit. It is accepted that the provision of the benefits will be at arm's length, and not entered into for the purposes of gaining a benefit under subsection 59(3).

Subsection 59(3) Conclusion: You satisfy the provisions of subsection 59(3)

III. Section 60A - Reduction of Taxable Value - Remote Area Holiday Transport Fringe Benefits subject to a ceiling.

Section 61 - Reduction of Taxable Value - Remote Area Holiday Transport Fringe Benefits not subject to a ceiling.

Employees working in remote areas may be reimbursed for the costs of, or may be provided with, transport in connection with extended recreation leave of more than three days.

Section 60A and section 61 provide a reduction in the taxable value of fringe benefits where transport, accommodation or meals are provided to an employee and family members in connection with having a holiday of not less than three days.

To obtain the reduction in the taxable value of fringe benefits under sections 60A and 61, your company must satisfy the conditions of Remote Area Holiday Transport under section 143.

Subsection 143(1) - Remote area holiday transport

Subsection 143(1) provides:

For the purposes of this Act:

(a) the recipients expenditure in relation to an expense payment fringe benefit;

(aa) the recipients property in relation to a property fringe benefit; or

(b) the recipients benefit in relation to a residual fringe benefit;

in relation to an employer, in relation to an employee, in relation to a year of tax shall be taken to be in respect of remote area holiday transport if:

(c) in the case of an expense payment fringe benefit - the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(ca) in the case of a property benefit - the recipients' property consists of meals in connection with transport;

(d) in the case of a residual fringe benefit - the recipients benefit consists of:

(i) the provision of transport or accommodation in connection with transport; or

(ii) the receipt of an allowance in respect of the cost of obtaining transport, or of obtaining meals or accommodation in connection with transport; (e) the transport, accommodation or meals is for a family member;

(e) the transport, accommodation or meals is for a family member;

(f) apart from temporary absences, the employee performs the duties of his or her employment at a place in a State or internal Territory but not at a location in, or adjacent to, an eligible urban area;

(g) the transport is provided wholly or principally to enable the family member to have a holiday for a period of not less than 3 days;

(h) if the transport is for the employee:

(i) the transport is provided while the employee is on recreation leave, being recreation leave of not less than 3 working days; and

(ii) at the completion of that recreation leave, the employee resumes the duties of that employment at the place referred to in paragraph (f);

(j) either of the following subparagraphs applies:

(i) the transport is between:

(A) a place at or near the place referred to in paragraph (f); and
(B) another place;

(ii) the transport is for the spouse, or a child, of the employee, being a spouse or a child of the employee who does not live with the employee at or near the place referred to in paragraph (f), and the transport is between:

(A) a place where the spouse or child, as the case may be, meets the employee; and

(B) another place;

(j) either of the following subparagraphs applies:

(i) the transport is between:

(A) a place at or near the place referred to in paragraph (f); and
(B) another place;

(ii) the transport is for the spouse, or a child, of the employee, being a spouse or a child of the employee who does not live with the employee at or near the place referred to in paragraph (f), and the transport is between:

(A) a place where the spouse or child, as the case may be, meets the employee; and

(B) another place;

(ja) if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of his or her employment; and

(ii) where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

(k) either of the following conditions is satisfied:

(i) the benefit is provided pursuant to the provisions of an industrial instrument relating to the employment of the employee;

(ii) it is customary for employers in the industry in which the employee is employed to provide benefits of the same kind as the benefit provided to the recipient and to provide such benefits in similar circumstances to those that applied in relation to the provision of the benefit to the recipient.

Application to your company

(c) This condition will be satisfied as you have provided that your company intends to pay for, or reimburse, the costs associated with transport or meals or accommodation in connection with the remote area holiday transport.

(e) This condition will be satisfied where you either pay or reimburse costs in relation to the transport, accommodation or meals of family members.

(f) This condition will be satisfied as you state that all employees eligible for remote area holiday transport will perform their duties of employment in a remote area.

(g) This condition will be satisfied as you state that the remote area holiday transport is to be provided to a family member, to enable them to have a holiday of not less than three days.

(h) This condition will be satisfied will be satisfied as you state that the remote area holiday transport is to be provided while the employee is on recreational leave for a period of not less than 3 days, and at the completion of the recreational leave, the employee resumes duties of employment as per paragraph (f), and the transport is intended to allow the employee to travel between the remote area and another location.

(j) Condition (i) will be satisfied as the transport is intended to allow the employee to travel between the remote area and another location.

Condition (ii) will also be satisfied, as will be satisfied as you state that where the transport is provided to a family member, it will be provided to enable them to travel between a place where they meet the employee and another location.

(ja) (i) On the basis that you have satisfied paragraph (g) above, this condition will also be satisfied.

(k) (ii) As previously discussed in the analysis of section 58ZC, it is accepted as an underlying assumption of this ruling that it is customary for employers in your industry to provide expense payment benefits of the same kind to employees.

Subsection 143(1) conclusion: You satisfy the provisions of subsection 143(1)

Issue 2

Question 2

Where your company's employees request to salary sacrifice benefits provided under the sections listed in Question 1 above, can the taxable value of the benefits be reduced or exempted under the relevant subsection (where the relevant criteria are satisfied) under the following circumstances:

a) The employee incurred the costs in prior FBT years;

b) Your company subsequently enters into a salary sacrifice arrangement with the employee to recoup the costs from the employee via pre-tax deductions; and

c) Your company reimburses the employee for the costs during the current FBT period.

Summary

Yes. Where your employees request to salary sacrifice benefits provided under the sections listed in Question 1, the taxable value of the benefits can be reduced under those relevant subsections for the circumstances contained in a), b) and c) above.

Detailed reasoning

The Commissioner's view on salary sacrifice agreements is provided in Taxation Ruling TR 2001/10 Fringe benefit tax and superannuation guarantee: salary sacrifice arrangement.

TR 2001/10, paragraph 19 states:

'Salary sacrifice arrangement' (SSA)- in this Ruling, the term salary sacrifice arrangement means an arrangement under which an employee agrees to forego part of his or her total remuneration, that he or she would otherwise expect to receive as salary or wages, in return for the employer or someone associated with the employer providing benefits of a similar value. The main assumption made by the parties is that the employee is then taxed under the income tax laws only on the reduced salary or wages and that the employer is liable to pay FBT, if any, on the benefits provided.

In addition, paragraph 21 states:

'Effective SSA' - an effective SSA involves the employee agreeing to receive part of his or her total amount of remuneration as benefits before the employee has earned the entitlement to receive that amount as salary or wages.

It is clear that an arrangement between the employer and the employees detailing the amount of salary or wages to be sacrificed must be entered into before the actual performance of the service.

In relation to the reimbursement by the employer to the employee for an expense incurred by the employee, an expense payment fringe benefit will arise under section 20.

An expense payment benefit arises at the time when the provider makes the reimbursement payment. There is not a requirement that the reimbursement be made in the same year that the expense is incurred.

Application to your company

Based on the above analysis, the reimbursement payment by you to your employee for the expenses paid by the employee in relation to remote area housing has satisfied the circumstances specified in paragraph 20(b).

The proposed SSA will be considered effective as it is proposed to be entered into prior to personal services being performed.

The benefit will arise at the time of the reimbursement regardless of whether the expenses reimbursed are prior year expenses.

You can access the relevant concessionary FBT treatment (referred to in Question 1) for the expense payment fringe benefits on the basis of the proposed arrangement.